VF Corp. Stock Down On Q3 Earnings Miss

Vault by Vans x The North
Vault by Vans x The North Face.
Courtesy of brand.

It has been a tough week for footwear and apparel stocks.

Although Greensboro, N.C.-based VF Corp. reported low-single-digit growth in revenues in the third quarter, the firm’s earnings fell below market watchers’ estimates driving the stock down nearly 13 percent at press time.

A “mixed retail environment,” according to VF Corp. CEO Eric Wiseman, coupled with ongoing currency pressures, weighed on the company in the quarter.

“While we do see some choppiness in parts of the current environment, our third quarter results and outlook for the [next] four-years, give me great confidence in our sector and in VF’s long-term ability to outperform the market by focusing on what we do best — deepening our consumer connections to strengthen our brand and proactively managing our business to ensure we continue to create value for our shareholders,” Wiseman said during the firm’s Q3 conference call.

Currency neutral revenues for Vans were up 10 percent, 2 percent on a reported basis, while wholesale revenues for the brand declined on a reported basis. Sales at Timberland gained 21 percent on a currency neutral basis, or 11 percent on a reported basis, including more than 25 percent currency-neutral growth in its wholesale business, although direct-to-consumer sales declined on a reported basis.

As a result of ongoing FX pressures, management also lowered parts of its financial outlook for the  year.

Net Income: Profits for the third quarter, ending Oct. 3, 2015, decreased 2 percent to $459.9 million, compared to the same year-ago quarter’s profits of $470.5 million. (reported basis)

EPS: Diluted earnings per share declined 1 percent, on a reported basis, to $1.07 from the comparable quarter when diluted EPS were $1.08.

Net Revenue: Sales increased 3 percent, on a reported basis, to $3.58 billion compared to the same year-ago quarter’s sales of $3.49 billion.

Hit, Miss or Beat: VF Corp. missed Wall Street’s estimates for EPS and revenues. Analysts polled by Yahoo Finance had predicted EPS of $1.12 and revenues of $3.68 billion.

Executive Insights: “On a currency neutral basis, our year-to-date revenue is up 9 percent and our earnings per share are up 15 percent – a performance that affirms our ability to leverage our diverse, competitive assets to fuel consistent, long-term growth,” said Wiseman in a release. “Today’s results speak to the power of VF’s brands and platforms to perform well in what is proving to be a mixed retail environment. We delivered excellent operating results by staying focused on what we do best – bringing relevant, innovative product to the marketplace, amplifying our relationships with consumers and driving operational excellence into every area of our business.”

Looking Ahead: VF Corp. lowered guidance for EPS to $3.18 from $3.22; its currency neutral revenue growth from 8 percent to 7.5 percent.

Analyst Insights: “We were surprised to see overall inventory growth of 11.8 percent during the quarter, which significantly outpaced this quarter’s sales growth. This is the largest Q3 inventory increase in the last several years … VFC rarely misses and The Street is likely to have to take numbers down as a result of weaker top line trends.” — Citi Research analyst Kate McShane